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…As Icap’s Profits Soar, Boosted by FX Revenues…

Icap, the world's largest interdealer broker, has reported record revenues and profits, boosted by the success of its electronic broking group, which includes the EBS foreign exchange trading business.

Group revenue rose by 15% to £626.2 million in the six months to 30 September and pre-tax profit soared by 34% to £161.5 million as a result of busy markets during most of the first half of the year. Icap says it benefited particularly from higher volatility in the interest rate, foreign exchange, energy, emerging and credit markets.

Both the electronic and voice broking businesses felt the positive impact of these higher levels of activity. Profit in the electronic broking business grew by 107% compared with the first half of 2006. The business now generates 29% of group operating profit from 20% of group revenue.

Broken down by product group, revenue from foreign exchange products grew by 35% in the six months to September to £92.7 million – the highest percentage increase of all products. The FX business contributed 15% to Icap's overall revenues – the second highest behind interest rates, which contributes 40%.

Average daily electronic spot FX volumes over the half-year were $180 billion, which includes $1 billion in precious metals, an increase of 21% compared with the same period in the previous year.

Icap says it has seen “significant growth” in algorithmic trading and EBS Prime, and this year it has introduced a range of new currencies on the EBS platform including the Russian rouble and Turkish lira, sterling/yen and Australian dollar/New Zealand dollar together with new metals including platinum and palladium (see Squawkbox, 12 March).

Icap now offers electronic trading in almost 30 currencies and precious metals as well as 35 currency pairs.

The company says its target in the medium-term is to increase the share of operating profit coming from its electronic broking division to 50%.

In the market generally, it aims to hold at least a 35% market share of revenue from its 31% now within the next three years. Its main competitors are GFI Group and Tullett Prebon, both of which are currently embroiled in a High Court row over staff poaching between the two companies.

“This year we have made significant progress towards these goals [of 50% and 35%]…We have built the leading voice broking business together with a very significant technology-based business with an extensive global network,” Icap said in a statement. “The combined global network covers more than 6,000 workstations in 50 countries on more than 1,000 dealing floors.”

The broker has also expanded in to other areas and regions. On 13 September, Icap's joint venture in Shanghai, CFETS-ICAP, began voice broking operations in money, bond and derivative products in both the renminbi and international markets.

And next month, Icap expects to complete the purchase of Traiana, a provider of back-office services in FX trading for $238 million.

Michael Spencer, Icap's group CEO says he wants to expand the service and use it as a springboard into back-office systems of other markets.

“More efficient post trade processing increases the velocity of trading in our markets and facilitates the adoption of electronic trading,” Icap says.

Meanwhile, the newer product areas for the company – energy, credit derivatives, emerging markets, equity derivatives and transport – all grew faster than Icap’s business overall. These new markets and businesses, introduced during the past three years, together accounted for 19% of group revenue during the first half of the year.

Looking ahead, Icap says its aim is to diversify voice business further into new asset classes and provide more post-trade services.

In addition to operating multilateral trading facilities under MiFiD, the company says there are opportunities in several markets to offer trading on an “Icap Exchange”. Last week it announced plans to apply to the UK's Financial Services Authority to become a regulated market (see related story).

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